Wealth as a Determinant of Comparative Advantage

Wynne, J. C.

doi:10.1257/0002828053828626

Cited by 58 publications

(55 citation statements)

References 23 publications

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“…The actual comparative advantage is also shaped by the allocation of sectoral entrepreneurial wealth, x i , which accumulates according to analogues of (22). In the short run, the country may specialize against its latent comparative advantage, if entrepreneurs in that sector are poorly capitalized (as was pointed out in Wynne, 2005). In the long-run, the latent comparative advantage forces dominate, and entrepreneurial wealth relocates towards the sector with the highest p * i Θ i .…”

Section: Comparative Advantage and Industrial Policiesmentioning

confidence: 96%

Optimal Development Policies with Financial Frictions

Itskhoki¹,

Moll²

2014

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We study optimal dynamic Ramsey policies in a standard growth model with financial frictions. For developing countries with low financial wealth, the optimal policy intervention increases labor supply and lowers wages, resulting in higher entrepreneurial profits and faster wealth accumulation. This in turn relaxes borrowing constraints in the future, leading to higher labor productivity and wages. The use of additional policy instruments, such as subsidized credit, may be optimal as well. In the long run, the optimal policy reverses sign. Taking advantage of the tractability of our framework, we extend the model to study its implications for optimal exchange rate and sectoral industrial policies.

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Section: Comparative Advantage and Industrial Policiesmentioning

confidence: 96%

Optimal Development Policies with Financial Frictions

Itskhoki¹,

Moll²

2014

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“…As in Quadrini (2000) and Wynne (2005), the first sector (Corporate sector ) is dominated by large production units. The second sector (Noncorporate sector ), is characterized by small production units where households engage in entrepreneurial activities.…”

Section: Production Sectorsmentioning

confidence: 99%

“…Besides the intermediation cost variable, in our model there is also an enforcement constraint and the subsidized loan program affects directly this enforcement restriction by decreasing interest rates on such loans. We also have a corporate sector, as in Quadrini (2000) and Wynne (2005), in which the credit market frictions are not necessarily binding. This is important since large corporations account for a significant fraction of output in the economy and do not face the same credit frictions as small entrepreneurs do.…”

Section: Introductionmentioning

confidence: 99%

The effects of credit subsidies on development

2014

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This paper studies the effects of interest rate credit subsidies on economic development in a general equilibrium model with heterogeneous agents, occupational choice and financial frictions. There are two financial frictions: a cost to intermediate loans and a limited liability problem which maps into the degree of enforcement of credit contracts in the economy. Occupational choice and firm size are determined endogenously by an agent's type (ability and net wealth) and the credit market frictions. We then add a credit program that subsidizes the interest rate on loans. There is a fixed cost (which might be null) to apply for such loans in the form of bureaucracy and regulations. We show that for the United States, an interest rate credit subsidy does not have a significant effect on output per capita, but it can have important negative effects on wages and government finances. For Brazil, a developing country in which financial repression is high and the government subsidies heavily loans, our counter-factual exercises show that if all interest subsidies were cut, no significant quantitative effect would occur on output per capita, wages, inequality or government finances. However, when the interest rate subsidy is fixed at the level observed in Brazil, but access to the credit program is increased, then output and wages might both increase, as long as the interest rate subsidy does not not affect directly the spread on non-subsidized loans.

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“…The intuition is that a transfer of wealth from the poor to the relatively wealthy might alleviate financial constraints sufficiently to allow the economy to specialize in those sectors 1 See for example, Antras andCaballero (2009), Beck (2002), Bougheas and Falvey (2010), Chaney (2005), Egger andKeuschnigg (2009), Ju andWei (2008), Kletzer and Bardhan (1987), Manova (2008b), Matsuyama (2005) and Wynne (2005).…”

Section: Introductionmentioning

confidence: 99%